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Capital markets Peer-to-peer, marketplace lending - Landbay - Finpoint - OnDeck Blockchain and cryptocurrencies - Safello - Wirex Financial inclusion - EdAid Payments |
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In March, KPMG and CB Insights reported that global investment in fintech companies reached $19 billion in 2015, with most of it ($13.8 billion) provided by venture capitalists, while large chunks also came from banks and corporations.
It’s an astonishing amount, when you consider that as recently as 2012, total investment in fintech was just $2.8 billion, and it looked like an intriguing but marginal activity for tech geeks. Investment edged up to $3.9 billion in 2013 and then tripled, in what looked like the breakout year, to $12.2 billion in 2014.
In 2014, venture capitalists allocated $6.7 billion to fintech. It looked like a lot then, but they then doubled that investment last year.
Last year’s surge, partly fuelled by large deals for blockchain start-ups and a record year in Asia, where fintech start-ups raised more than in the previous four years combined, shows the powerful wave of transformation in financial services. Driven by the need for greater efficiency, specialization and the search for regulatory compliance, the mainstream banking industry is now embracing fintech whole-heartedly.
Brian Hughes, co-leader, KPMG Enterprise Innovative Startups Network, and national co-lead partner, KPMG Venture Capital Practice, in the US, says: “Over the past couple of years there has been a significant shift as banks have moved from seeing fintech companies as disruptors to co-creators. Today, many of the banks are increasingly collaborating with fintech companies to access new markets and strengthen the user experience of their customers around the world.”
Competition
Banks have been careful to set up a network of accelerators, in-house venture funds and hackathons to capture the best emerging financial technology so that even if it does disrupt their established businesses, they have a good chance of owning it.
But there is still some sense of competition between the incumbents and the tech-enabled newcomers. Last month, World First, a new international payments company, trumpeted a survey by Censuswide into the attitudes of over 1,000 UK small and medium-sized enterprises to new specialist fintech providers of foreign exchange services. The survey shows that those SMEs using specialist providers felt that, compared to traditional banks, the fintech newcomers demonstrated a better understanding of their business’s needs (85%), delivered a more tailored proposition (94%) and provided greater transparency on fees (88%).
Jonathan Quin, CEO and co-founder of World First, says: “While SMEs have historically had to rely on the big banks for any sort of financial service, genuine innovation and technological development from the fintech sector has given rise to a wide range of truly compelling alternatives. This new breed of specialist providers is often better placed to serve the needs of SMEs than traditional banks, offering greater flexibility for the user, more transparent pricing and, ultimately, better value.”
KPMG and CB Insights reported last month that there are now 19 fintech unicorn companies of which 14 are providing payments or marketplace lending. In October last year, SoFi, one of the biggest marketplace lenders in the US offering student-loan refinancing, mortgages and personal finance, raised $1 billion in a series-E funding round led by Soft Bank. This may have been the largest singe investment ever in a fintech company.
SoFi, which does not use FICO credit scores in loan underwriting, but rather considers employment history, track record of meeting financial obligations and cash flow, has lent over $6 billion.
CEO and co-founder Mike Cagney says: “We are proud to be the only major lender that does not use the [FICO] score for any lending. Instead of relying on a three-digit number to tell us who’s qualified, we look for applicants who have historically paid their bills on time and make more money than they spend. It’s that simple.”
The core
Fintech is bringing disruption beyond payments and lending to the core of the capital markets.
In March, SyndicateRoom, a crowdfunding equity-investing platform, announced that it had received intermediary approval status from the FCA to give its members access to the £200 million IPO of HealthCare Royalty Trust on the premium listing segment of the London Stock Exchange. Over the last two years, over £16.5 billion was raised on the LSE via placings and IPOs, with an average 10% discount given to institutional investors.
Goncalo de Vasconcelos, CEO and co-founder of SyndicateRoom, says: “We are now seeking to democratize access to the public market, widening the reach of IPO discounts and putting the public back into IPO. SyndicateRoom’s move into the public equity market is another step in the evolution of the London Stock Exchange providing capital to growth companies, now with greater participation from individual investors.”
David Brown, a SyndicateRoom member, says: "I've been investing for more than 25 years on the stock exchange and 15 years as a business angel and am incredibly excited about the prospect of having access to IPOs and private placings on a level playing field with institutional investors.”
In the articles below, Euromoney reviews some of the most exciting fintech companies – both recent start-ups and longer established names – now revolutionizing areas ranging from mortgage lending, debt capital markets, emerging-market equity investing, provision of finance to SMEs, as well as bringing new approaches to student finance and enabling investment in start-ups led by women entrepreneurs.
Most of these companies and a host of other leading fintech firms participated in the Innovate Finance Global Summit at London’s Guildhall Monday, April 11.
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Fourteen fintech firms in focus
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Fintech inevitably leads the search for greater efficiency and transparency to the most fiercely guarded corner of banks’ turf: the new-issue business. |
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In illiquid markets, information leakage can be highly damaging. Zeroflows wants to make it easier for investors to find the other side of the trade without betraying intentions to a multitude of brokers. |
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Two large fund-raising rounds have equipped the property-focused marketplace lender to grow into a mainstream mortgage provider. |
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Having attracted investment from Zoopla and with an Isa offering in the works, Landbay sees a big opportunity in marketplace lending for landlords. |
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While credit conditions appear to be easing for medium-size borrowers, small companies face big hurdles in securing finance. Finpoint aims to help them over. |
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Starting by transforming the workflows around invoices, Applied Blockchain is developing practical uses for shared ledger technology on private networks. |
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Acting for now as a secure exchange between conventional and cryptocurrencies such as bitcoin, Stockholm-based Safello is developing what it sees as a ground-breaking transaction browser. |
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As evidence emerges that start-ups led by women make more money for venture capitalists than those led by men, a new platform aims to help women entrepreneurs get funded. |
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As worries mount that large volumes of student debt extended in developed markets will never be repaid, EdAid seeks a new model for student loans and new lenders. |
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The French payment API provider is becoming the partner of choice for crowdfunding and crowdinvesting platforms across Europe that the incumbent banks can’t or won’t serve. |
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Specialist small business lender grows fast; more banks seek to white label its offering. |
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Norwegian fintech company aims to put small investors into investment ideas normally reserved for hedge funds. |
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Start-up is growing fast; bitcoin leg cheapens FX conversion. |
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SyndicateRoom is one of the great success stories. |
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